Are you someone who loves helping people in need and has a passion for vehicles?
If so, starting a tow truck business could be the perfect opportunity for you to turn your interests into a thriving business.
That said, it can be difficult to get things moving when you’re just starting, and dealing with the legal side of businesses can be overwhelming.
This article will give you the full scoop on how to start a tow truck business.
Read on to learn more!
Why Start a Tow Truck Business?
There are several reasons why starting a tow truck business can be appealing.
For one, you get to work with cars and vehicles daily, which is ideal for someone with a passion for cars.
The constant demand for tow trucking services also presents a lucrative business opportunity for those on the road.
Plus, you do not need formal training or a college degree to run a towing business (although understanding safety and protocol is important).
As with any business, there are risks. Dealing with vehicles can quickly become a legal battle if the cars are not handled carefully, and competition in urban areas can be less than welcoming to new businesses. Especially if they have been around for a long time.
If you are willing to put in the work and invest your time and effort in a successful towing company, it can prove to be a fruitful endeavor.
10 Steps to Start a Tow Truck Business
If you’re ready, let’s dive into the ten steps of starting a tow truck business.
1. Research the Regulations and Requirements
When starting a towing business, it is best to learn about all the legal aspects you need to consider.
This will save you from litigation, court cases, or other legal burdens.
By researching your area and consulting with a legal professional, you can determine what you need to consider in your jurisdiction.
This may include obtaining certain licenses, permits, or a commercial driver’s license.
In any case, you should take responsibility beforehand so that you do not end up with unnecessary fines or legal problems later on.
2. Calculate the Cost of Starting Your Tow Truck Business
The next step in starting your towing business is determining your start-up costs.
One of the main investments will be the tow truck itself. This can cost anywhere from $65,000 to $120,000.
This depends on several variables such as the quality of the vehicle, whether it’s used, and the model.
Licensing fees or permits are also an expense to consider when starting your business. Depending on the state, there may be strict regulations for operating a towing business.
In addition, you should budget for marketing and advertising your business, which can also be costly to your startup budget.
3. Decide on a Business Type and Model
As you develop your business model, you will need to decide on the type of business you will run and if there are other similar services you will provide.
For example, you will need to decide on the type of tow truck you’ll be operating and the type of vehicles you service.
Also, take into account any other services you will offer along with your tow trucking services —such as jump starts, tire changes, or lockout assistance.
4. Select the Type of Tow Truck for Your Business
Once you establish your business model, the next step is choosing the type of tow truck you’ll use.
Here are some common types of tow trucks to consider:
- Flatbed Trucks: These trucks have a flat platform that can be raised and lowered hydraulically. They are ideal for towing vehicles that are too damaged or low to the ground to be towed by other trucks. They are also a good choice for long-distance towing.
- Integrated Tow Trucks: These trucks combine the capabilities of a flatbed truck and a traditional tow truck. They have a boom that can be used to lift and tow vehicles and a flatbed for vehicles that can’t be lifted.
- Hook and Chain Trucks: These trucks use a hook and chain to lift and tow vehicles. They are generally used for short distances and are not recommended for newer vehicles, as the chain can damage the vehicle.
- Wheel-Lift Trucks: These trucks use a metal yoke that fits under the front or back wheels of the vehicle. The yoke is then lifted and the vehicle is towed on its remaining wheels.
When choosing a tow truck for your business, consider the types of vehicles you will be towing and the services you plan to provide. It’s also important to consider the cost of the truck and the additional equipment you will need to operate it safely and effectively.
Choose Your Business Structure
In this step, we’ll be going over which business structure is best for your tow company.
This is a crucial step because the entity you choose will determine your legal obligations and how you pay your taxes.
Below, you will find the main types of business structures you can choose from along with their advantages and disadvantages.
A sole proprietorship is the easiest business entity to form and operate. It requires little legal documentation and regulations. This type of business is run by one person, and personally responsible for any liabilities of the business.
- Easy to form and operate
- Full control and autonomy over the business
- Requires little maintenance and legal documents
- Personally liable for all debts and legal issues
- Inability to raise capital due to lack of business legitimacy
- Harder to take time off for holidays
A general partnership is owned by at least two people who share the responsibilities of the management of the business as well as the legal liabilities and debts. (similar to a sole proprietorship)
- Shared responsibility and combined effort
- Pooled resources to raise capital and funding
- Simplified taxes
- Can have disagreements and conflicts between partners
- Unlimited liability for both partners
- Collectively responsible for each other’s liabilities
A limited partnership includes at least one general partner and one or more limited partners. The general partner is responsible for the business’s day-to-day operations and has unlimited liability for the obligations and debts of the business. Limited partners are passive investors with personal liability protection and do not participate in day-to-day operations.
- Limited partners are only liable for the amount of investment in the partnership
- Partners benefit from pass-through taxation and are not subject to corporate taxation
- Ability to raise capital through investors and other financial institutions
- General partners are personally liable for the business’s debt and legal obligations
- Limited partners have less autonomy over business operations and management
- Can be complex to set up and maintain — resulting in disputes between partners
Limited Liability Company
A Limited Liability Company (LLC) is a type of business entity that combines the flexibility and tax benefits of a partnership/ sole proprietorship, with the limited liability protection of a corporation.
- Members are not personally liable for any business debt or obligations of the company
- Income is passed through to the personal income tax — offering significant tax benefits compared to a corporation
- Flexible management structure and shared responsibility
- More costly to form and maintain than a partnership or sole proprietorship
- Transferring ownership can be limiting
- Regulations can vary by state making it less flexible to operate in various states
A corporation is a separate legal entity owned by shareholders and operated by a board of directors. Corporations can enter into contracts, incur debt, and tolerate lawsuits, all in their own name.
- Ability to raise significant capital through the sale of stocks to investors
- Legal liability protection separates personal assets from any financial trouble in the business
- As a separate legal entity, a corporation can own property, enter into contracts, and engage in legal action in its own name
- Subject to double taxation from corporate income tax and personal income tax on dividends from the company
- Setting up and maintaining is more expensive with overhead costs
- Complex legal structure with regular meetings and compliance regulations
You can learn more about these business structures and their functions here.
5. Register Your Business
To launch your tow truck business, you’ll need to register your business with the appropriate government agencies.
This process will depend on the type of business entity you choose.
You may also need to register with the Internal Revenue Service (IRS) for tax purposes, obtain a business license from your local government, and register your business name with the Secretary of State.
Making sure your data is collected by the government helps legitimize your company and be taken seriously as a business entity.
This builds trust with your customers and builds your reputation as a leading competitor in your field, which in turn helps grow your business.
Don’t forget to research the requirements in your state and obtain all necessary permits and licenses to ensure that your business is operating legally.
6. Obtain Licenses and Permits
To legally operate your towing business, it is important to obtain the necessary licenses and permits. These may include a business license, vehicle registration, and a tow truck permit.
You may also need to obtain a (CMV) commercial driver’s license, to operate a tow truck. The specific requirements will depend on your location and your chosen business type.
7. Get Insured
Proper insurance coverage is critical for any towing company. Additional protection in the event of an accident can be vital to the survival of your business.
Here are some key considerations:
- Look for a policy that covers cargo, liability, and property damage
- Cargo insurance will cover any damage or loss to vehicles being towed
- Liability insurance will protect your business in case of accidents or injuries caused by your tow truck
- Property damage insurance will cover any damage to your tow truck or other property
Having the right insurance will give you peace of mind and protect your business from potential risks.
8. Secure Financing for Your Tow Trucks
Starting a towing company can be a costly business venture. So securing a reliable source of funding is an essential factor in your business efforts.
Private lenders may offer loans or lines of credit to help you purchase tow trucks and other equipment needed for your business.
You also have the option to apply for loans offered by the (SBA) Small Business Administration. This is a good choice for lower interest rates and reasonable terms of the agreement.
Typically, you will need to submit a well-developed business plan, provide your financial documents, and give your lenders confidence that you will repay the loan on time.
Take your time and shop around to see which type of loan suits your situation best and consult with an accountant if necessary.
9. Purchase Tow Trucks and Other Equipment
Now, to do some shopping for tow trucks and any gear you may need for safety and convenience.
Tow trucks come in a variety of models, from light trucks for towing small vehicles to heavy tow trucks for towing larger vehicles such as semi-trucks and buses.
So you should be clear about what kind of service you want to offer and which tow truck is most suitable for your business.
This also applies to the type of equipment you will invest in.
Some equipment you should consider purchasing are:
- Tow straps
- High visibility vests
- Safety glasses
Zip’s has a wide selection of equipment that you can browse through to get an idea of the different types of equipment and tow trucks available.
10. Build a Network of Partners and Customers
The final step to starting a towing business is to build a network of people and organizations that will work with your business.
This includes building relationships with mechanics, auto repair shops, and other towing companies, or joining an association.
Organizations such as the PTRA (Power-Motion Technology Representatives Association) or TRAA (Towing and Recovery Association of America) are great places to learn about current laws, advertise for free, and connect with like-minded business owners and entrepreneurs at membership meetings.
Moreover, staying informed and socially engaged will improve your reputation as a leading competitor in your community.
Building the Foundations of Your Towing Business
Starting a tow truck business has the potential to be a lucrative and exciting business venture.
The challenges associated with building a business structure can be daunting at the outset. That’s why it’s best to seek help in these situations.
With doola, we help you build your business structure and organize your finances so you can focus on building your business and providing professional services.
Contact us today for a free consultation with one of our bookkeeping professionals.
How much money do I need to start a tow truck business?
Depending on many factors, it will typically cost $10,000 to $200,000 to start a tow truck business.
How profitable is owning a tow truck?
You can expect to earn $30,000 to $100,000 a year with proper execution and a diligent work ethic.
Is buying a tow truck a good investment?
Buying a tow truck is a good investment if you intend to become a competing player in the towing industry.
What is the most economical towing truck?
Flatbed or wheel lift tow trucks are typically the most fuel-efficient and cost-effective.